Revenue share model works for iPhone software

I have long advocated a revenue share model for community broadband, in which a single community-owned digital infrastructure is made available to private sector providers to deliver services like voice, video, and Internet access to customers. Service providers would pay a share of their revenue to the network to cover the cost of build out and maintenance.

Critics of this approach argue that it is too "risky," and "unproven," although it has worked successfully for years in other countries.

We have a data point that hints that this can work. Apple has used exactly this approach for marketing software for the popular iPhone, and the results have been nothing short of astounding.

Apple made and continues to make a huge investment in the basic infrastructure needed to market and deliver applications to individual iPhones--the iPhone App Store. Software developers can place their software in the store for free, and pay nothing until they make sales. They pay Apple 30% of their revenue, so an application selling for a dollar means Apple gets thirty cents to cover the cost of hosting that application in the App Store.

This approach is exactly the same as an open services broadband network:

• A single owner/manager creates a fully integrated, high performance infrastructure and makes it available to any provider that meets minimum standards. This aggregates a very large marketplace of potential customers.
• Providers have a very low cost of entry into this aggregated marketplace, which preserves business capital and allows companies to spend more on innovative products and services.
• The low cost of market entry attracts business start ups and levels the playing field, with no "big company" advantage and extensive competition as the market matures.
• Extensive competition keeps prices low, a major benefit for customers.
• Extensive competition also encourages innovation, because highly differentiated products or services can support higher prices.
• A single infrastructure owner/manager provides a level of quality and performance beyond the capacity of any individual company to deliver.

The key concept is shared infrastructure. For both broadband networks and the software marketplace, everyone wins, including service providers and software developers, because costs are lower across the board. In the case of the iPhone marketplace, it is much less expensive for a start up developer to place a product in the Apple App Store than to design and fund a stand alone marketing effort. In the case of broadband, it is much less expensive for a service provider to deliver services like Internet access over a shared network, despite increased competition, because the costs are so much lower than building a private (non-shared) network and because the marketplace of potential customers is much larger.